Sunday, January 16, 2011

Australia Floods Spread to Victoria

SYDNEY—Australia's flood crisis continued to spread Sunday with parts of Victoria state in the country's southeast suffering record flooding, forcing the evacuation of 3,000 residents just as a major cleanup operation in flood-ravaged Queensland begins.

The flooding in Victoria was largely confined to the northwest of the state, affecting some 13,000 properties and leaving 3,000 people to seek refuge at evacuation centres, while parts of northern New South Wales also were impacted.

In the coal-rich state of Queensland, which has been beset by flooding since December with two-thirds of the state under water and more than 25 people dead, residents and businesses began a massive cleanup process. Researchers IBISWorld predicted the state's rebuilding would add 10 billion Australian dollars ($9.9 billion) in revenue to the construction industry over the next two years but expects sharp losses for industries such as agriculture, tourism, insurance, mining and transport and logistics.

Queensland accounts for some 20% of Australia's economy and makes up 60% of global coking coal exports. The rebuilding efforts in the wake of the disaster will add A$1.2 billion in revenue to the construction industry in the fiscal year to June 30, 2011, with an extra A$4.8 billion in fiscal 2012 and A$4 billion in fiscal 2013, IBISWorld said in a report Friday. Total revenue for the industry is estimated at A$295 billion in fiscal 2011, rising to A$319 billion in the year to June 30, 2013, it said.

"We expect significant lost productivity in the short term, with work currently stopped on approximately A$5 billion worth of commercial projects. In the long term, the cost of replacing destroyed infrastructure—restoring power lines, rebuilding roads and bridges and reinforcing buildings—will prompt a mini-boom once the water has subsided, particularly since state and Federal governments will be willing to fund rebuilding projects as soon as possible," said Robert Bryant, general manager, Australia, at IBISWorld. Outside of construction, however, the outlook is not so upbeat.

IBISWorld said Queensland's agricultural industry—particularly vegetable and fruit growers, cotton, sugar, grain and livestock farmers—will be hard hit, with total estimated losses of A$1.6 billion. With Queensland supplying 28% of Australia's fruit and vegetables, food inflation would result, it added.

The tourism industry will lose A$590 million in revenue in fiscal 2011, IBISWorld estimates, although it forecasts the sector will rebound in the following year.

General insurers will pay out about A$500 million in claims related to the floods, with the remainder covered by major global reinsurers, while the transport industry will likely lose A$467.4 million this month alone, it said.

"It is unclear how much damage has been caused to rail tracks and roads in Queensland, but the repair bill could exceed A$1 billion," said Mr. Bryant.

The floods will cost Queensland's mining industry A$2.5 billion in fiscal 2011, with A$2 billion of this a result of lost coal shipments as well as a A$500 million impact on mining contractors.

"While the lost coal production is unlikely to be recouped in coming months, the miners' losses will be partially offset by rising spot prices for coal, which will result in higher second-quarter coal contract prices," IBISWorld said.

The firm downgraded its forecast for Australia's gross domestic product to 2.6% in fiscal 2011 from a previous estimate of 2.9%.

Irish Bank Protest

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Greenspan Admits Federal Reserve Is Above The Law and Answers To No One

« Fed Officials Led By Greenspan Saw Housing Bubble in 2005, Didn't Alter Policy - Newly Released FOMC Minutes »

Scroll down for very special Greenspan video...


Source - Bloomberg

Federal Reserve staff and policy makers identified a housing bubble in 2005, and failed to alter a predictable path of interest-rate increases to slow down the expansion of mortgage credit, transcripts from Open Market Committee meetings that year show.

  • The “measured” pace language helped fuel the housing boom by keeping longer-term interest rates low and was inappropriate at the time given the uncertainties about both inflation and asset prices, said Marvin Goodfriend, a professor at Carnegie Mellon University in Pittsburgh.
  • “It was a major mistake by Greenspan,” said Goodfriend, who attended some of the 2005 meetings as a policy adviser to the Richmond Fed. “It gave markets a sense that the Fed was on top of everything to a degree that wasn’t the case. It gave the impression that this was a mechanical adjustment to normality. The market was overconfident.”

New York Fed researcher Richard Peach dismissed press reports describing a bubble in housing markets.

  • “Hardly a day goes by without another anecdote-laden article in the press claiming that the U.S. is experiencing a housing bubble that will soon burst, with disastrous consequences for the economy,” Peach told the committee.

Greenspan followed the presentation with questions about the effect of underlying land prices in housing indexes, and the quality of data on whether home purchases were for investment or residences.

  • “There was a fundamental failure of economic analysis to understand what was going on in the potential for house prices to stop rising,” said William Poole, the former St. Louis Fed president who attended the meetings in 2005. “The high degree of assurance that we all felt that house prices could not decline on a national average basis in a fundamental way -- that was a significant mistake.”

Continue reading at Bloomberg...


Greenspan admits the Fed is above the law...

Listen carefully as Greenspan spells it out...

New Slideshow - From Time Magazine - See a pic of Bernanke at age 13, hair slicked back, playing the saxophone - This is a True Must See


Video - PBS Frontline The Warning


Of course Bernanke never saw a housing bubble...

Video - Bernanke's failed CNBC predictions - classic...

He was too busy chasing Keynes ghost all over Princeton...



“Today, the government decides and they misdirect the investment to their friends in the corn industry or the food industry. Think how many taxpayer dollars have been spent on corn [for ethanol], and there’s nobody now really defending that as an efficient way to create diesel fuel or ethanol. The money is spent for political reasons and not for economic reasons. It’s the worst way in the world to try to develop an alternative fuel.” - Ron Paul

When bipartisanship breaks out in Washington DC, check to make sure your wallet is still in your pocket. Every time you fill up your car this winter you are participating in the biggest taxpayer swindle in history. Forcing consumers to use domestically produced ethanol is one of the single biggest boondoggles ever committed by the corrupt brainless twits in Washington DC. Ethanol prices have soared 30% in the last year as the supplies of corn have plunged. Only a policy created in Washington DC could drive up the prices of gasoline and food, with the added benefits of costing the American taxpayer billions in tax subsidies and killing people in 3rd world countries.

The grand lame duck Congress tax compromise extended a 45-cent incentive to ethanol refiners for each gallon of the fuel blended with gasoline and renewed a 54-cent tariff on Brazilian imports. The extension of these subsidies, besides costing American taxpayers $6 billion per year, has the added benefit of driving up food costs across the globe, causing food riots in Tunisia, and resulting in the starving of poor peasants throughout the world. This taxpayer boondoggle is a real feather in the cap of that fiscally conservative curmudgeon Senator Charley Grassley. He was joined in this noble effort by another fiscal conservative, presidential hopeful John Thune. It seems these guys hate wasteful spending, except when it benefits their states. The bipartisanship in this effort was truly touching, as Democrats Kent Conrad and Tom Harkin also brought home the pork for their states.

A bipartisan group of 15 senators signed a letter in late November demanding an extension of U.S. ethanol subsidies. I wonder if the fact they have received hundreds of thousands of dollars in campaign contributions during the past six years from pro-ethanol companies and interest groups like ADM, Monsanto, the National Corn Growers Association, and the Iowa Renewable Fuels Association had anything to do with this demand. You can always count on a Senator to do what’s best for his re-election campaign rather than what is best for the country. These symbols of political integrity will always spout the standard talking points:
  • Promoting ethanol reduces our dependence on foreign oil
  • Ethanol is green renewable energy
  • Ethanol is cheaper than gasoline

As we all know when dealing with a politician, “half the truth, is often a great lie.”


Corn is the most widely produced feed grain in the United States, accounting for more than 90% of total U.S. feed grain production. 81.4 million acres of land are utilized to grow corn, with the majority of the crop grown in the Midwest. Although most of the crop is used to feed livestock, corn is also processed into food and industrial products including starch, sweeteners, corn oil, beverage and industrial alcohol, yogurt, latex paint, cosmetics, and last but not least, fuel Ethanol. Of the 10,000 items in your average grocery store, at least 2,500 items use corn in some form during the production or processing. The United States is the major player in the world corn market providing more than 50% of the world’s corn supply. In excess of 20% of our corn crop had been exported to other countries, but the government ethanol mandates have reduced the amount that is available to export.

This year, the US will harvest approximately 12.5 billion bushels of corn. More than 42% will be used to feed livestock in the US, another 40% will be used to produce government mandated ethanol fuel, 2% will be used for food products, and 16% is exported to other countries. Ending stocks are down 963 million bushels from last year. The stocks-to-use ratio is projected at 5.5%, the lowest since 1995/96 when it dropped to 5.0%. As you can see in the chart below, poor developing countries are most dependent on imports of corn from the US. Food as a percentage of income for peasants in developing countries in Africa and Southeast Asia exceeds 50%. When the price of corn rises 75% in one year, poor people starve.

The combination of an asinine ethanol policy and the loosest monetary policy in the history of mankind are combining to kill poor people across the globe. I wonder if Blankfein, Bernanke, and Grassley chuckle about this at their weekly cocktail parties while drinking Macallan scotch whiskey and snacking on mini beef wellington hors d’oeuvres. The Tunisians aren’t chuckling as food riots have brought down the government. This month, the U.N. Food and Agricultural Organization (FAO) reported that its food price index jumped 32% in the second half of 2010 — surpassing the previous record, set in the early summer of 2008, when deadly clashes over food broke out around the world, from Haiti to Somalia.

Let’s Starve a Tunisian

“What is my view on subsidizing ethanol and farmers? Under the constitution, there is no authority to take money from one group of people and give it to another group of people for so called economic benefits. So, no, I don’t think we should do that. Besides, bureaucrats and the politicians don’t know how to invest money.” - Ron Paul

The United States is the big daddy of the world food economy. It is far and away the world’s leading grain exporter, exporting more than Argentina, Australia, Canada, and Russia combined. In a globalized food economy, increased demand for corn, to fuel American vehicles, puts tremendous pressure on world food supplies. Continuing to divert more food to fuel, as is now mandated by the U.S. federal government in its Renewable Fuel Standard, will lead to higher food prices, rising hunger among the world’s poor and to social chaos across the globe. By subsidizing the production of ethanol, now to the tune of $6 billion each year, U.S. taxpayers are subsidizing skyrocketing food bills at home and around the world.

The energy bill signed by that free market capitalist George Bush in 2008 mandates that increasing amounts of corn based ethanol must be used in gasoline sold in the U.S. This energy legislation requires a five-fold increase in ethanol use by 2022. Some 15 billion gallons must come from traditional corn-blended ethanol. Nothing like combining PhD models and political corruption to cause worldwide chaos. Ben Bernanke and Charley Grassley have joined forces to bring down the President of 23 years in Tunisia. People tend to get angry when they are starving. Bringing home the bacon for your constituents has consequences. In the U.S. only about 10% of disposable income is spent on food. By contrast, in India, about 40% of personal disposable income is spent on food. In the Philippines, it’s about 47.5%. In some sub-Saharan Africa, consumers spend about 50% of the household budget on food. And according to the U.S.D.A., “In some of the poorest countries in the region such as Madagascar, Tanzania, Sierra Leone, and Zambia, this ratio is more than 60%.”

The 107 million tons of grain that went to U.S. ethanol distilleries in 2009 was enough to feed 330 million people for one year at average world consumption levels. More than a quarter of the total U.S. grain crop was turned into ethanol to fuel cars last year. With 200 ethanol distilleries in the country set up to transform food into fuel, the amount of grain processed has tripled since 2004. The government subsidies led to a boom in the building of ethanol plants across the heartland. As usual, when government interferes in the free market, the bust in 2009, when fuel prices collapsed, led to the bankruptcy of almost 20% of the ethanol plants in the U.S.

The amount of grain needed to fill the tank of an SUV with ethanol just once can feed one person for an entire year. The average income of the owners of the world’s 940 million automobiles is at least ten times larger than that of the world’s 2 billion hungriest people. In the competition between cars and hungry people for the world’s harvest, the car is destined to win. In March 2008, a report commissioned by the Coalition for Balanced Food and Fuel Policy estimated that the bio-fuels mandates passed by Congress cost the U.S. economy more than $100 billion from 2006 to 2009. The report declared that “The policy favoring ethanol and other bio-fuels over food uses of grains and other crops acts as a regressive tax on the poor.” A 2008 Organization for Economic Cooperation and Development (O.E.C.D.) issued its report on bio-fuels that concluded: “Further development and expansion of the bio-fuels sector will contribute to higher food prices over the medium term and to food insecurity for the most vulnerable population groups in developing countries.” These forecasts are coming to fruition today.

It Costs What?

The average American has no clue about the true cost of ethanol. They probably don’t even know there is ethanol mixed in their gasoline. The propaganda spread by the ethanol industry and their mouthpieces in Congress obscures the truth and proclaims the clean energy mistruths and the thousands of jobs created in America. The truth is that producing ethanol uses more energy than is created while driving costs higher. The jobs created in Iowa are offset by the jobs lost because users of energy incur higher costs and hire fewer workers as a result. It takes a lot of Saudi oil to make the fertilizers to grow the corn, to run the tractors, to build the silos, to get the corn to a processing plant, and to run the processing plant. Also, ethanol cannot be moved in pipelines, because it degrades. This means using thousands of big diesel sucking polluting trucks to move the ethanol – first as corn from the fields to the processing plants, and then from the processing plants to the coasts.

The current ethanol subsidy is a flat 45 cents per gallon of ethanol usually paid to the an oil company, that blends ethanol with gasoline. Some States add other incentives, all paid by the taxpayer. On top of this waste of taxpayer funds, the free trade capitalists in Congress slap a 54 cent tariff on all imported ethanol. Ronald R. Cooke, author of Oil, Jihad & Destiny, created the chart below to estimate the true cost for a gallon of corn ethanol. Cooke describes a true taxpayer boondoggle:

It costs money to store, transport and blend ethanol with gasoline. Since ethanol absorbs water, and water is corrosive to pipeline components, it must be transported by tanker to the distribution point where it is blended with gasoline for delivery to your gas station. That’s expensive transportation. It costs more to make a gasoline that can be blended with ethanol. Ethanol is lost through vaporization and contamination during this process. Gasoline/ethanol fuel blends that have been contaminated with water degrade the efficiency of combustion. E-85 ethanol is corrosive to the seals and fuel systems of most of our existing engines (including boats, generators, lawn mowers, hand power tools, etc.), and can not be dispensed through existing gas station pumps. And finally, ethanol has about 30 percent less energy per gallon than gasoline. That means the fuel economy of a vehicle running on E-85 will be about 25% less than a comparable vehicle running on gasoline.

Real Cost For A Gallon Of Corn Ethanol

Corn Ethanol Futures Market quote for January 2011 Delivery $2.46
Add cost of transporting, storing and blending corn ethanol $0.28
Added cost of making gasoline that can be blended with corn ethanol $0.09
Add cost of subsidies paid to blender $0.45
Total Direct Costs per Gallon $3.28
Added cost from waste $0.40
Added cost from damage to infrastructure and user’s engine $0.06
Total Indirect Costs per Gallon $0.46
Added cost of lost energy $1.27
Added cost of food (American family of four) $1.79
Total Social Costs $3.06
Total Cost of Corn Ethanol @ 85% Blend $6.80

Multiple studies by independent non-partisan organizations have concluded that mandating and subsidizing ethanol fuel production is a terrible policy for Americans:

  • In May 2007, the Center for Agricultural and Rural Development at Iowa State University released a report saying the ethanol mandates have increased the food bill for every American by about $47 per year due to grain price increases for corn, soybeans, wheat, and others. The Iowa State researchers concluded that American consumers face a “total cost of ethanol of about $14 billion.” And that figure does not include the cost of federal subsidies to corn growers or the $0.51 per gallon tax credit to ethanol producers.
  • In May 2008, the Congressional Research Service blamed recent increases in global food prices on two factors: increased grain demand for meat production, and the bio-fuels mandates. The agency said that the recent “rapid, ‘permanent’ increase in corn demand has directly sparked substantially higher corn prices to bid available supplies away from other uses – primarily livestock feed. Higher corn prices, in turn, have forced soybean, wheat, and other grain prices higher in a bidding war for available crop land.”
  • Mark W. Rosegrant of the International Food Policy Research Institute, testified before the U.S. Senate on bio-fuels and grain prices. Rosegrant said that the ethanol scam has caused the price of corn to increase by 29 percent, rice to increase by 21 percent and wheat by 22 percent. Rosegrant estimated that if the global bio-fuels mandates were eliminated altogether, corn prices would drop by 20 percent, while sugar and wheat prices would drop by 11 percent and 8 percent, respectively, by 2010. Rosegrant said that “If the current bio-fuel expansion continues, calorie availability in developing countries is expected to grow more slowly; and the number of malnourished children is projected to increase.” He continued, saying “It is therefore important to find ways to keep bio-fuels from worsening the food-price crisis. In the short run, removal of ethanol blending mandates and subsidies and ethanol import tariffs, in the United States—together with removal of policies in Europe promoting bio-fuels—would contribute to lower food prices.”

The true cost of the ethanol boondoggle is hidden from the public. The mandates, subsidies and tariffs take place out of plain view. The reason blenders (and gas stations) will pay the same for ethanol is because they can sell it at the same price as gasoline to consumers. A consumer will pay the same for ten gallons of E10 as for ten gallons of gasoline even though the E10 contains a gallon of ethanol. Consumers pay the same for the gallon of ethanol for three reasons. (1) They don’t know there’s ethanol in their gasoline. (2) There is often ethanol in all the gasoline because of state requirements, so they have no choice. (3) They never know the ethanol has only 67% the energy of gasoline and gets them only 67% as far. The result is that drivers always pay much more for ethanol energy than for gasoline energy, simply because they pay the same amount per gallon. When gasoline prices are $3.00 per gallon, Joe Six-pack pays $4.50 for the same amount of ethanol energy.

You know a politician, government bureaucrat or central banker is lying when they open their mouths. Whenever evaluating a policy or plan put forth by those in control, always seek out who will benefit and who will suffer. Who benefits from corn based ethanol mandates and subsidies? The beneficiaries are huge corporations like Archer Daniels Midland and Monsanto, along with corporate farming operations (80% of all US farm production), and Big Oil. The mandated ethanol levels are set in law. By providing tax subsidies we are bribing oil companies with taxpayer dollars to do something they are legally required to do, resulting in a $6 billion windfall profit to oil companies. The other beneficiaries are the Senators and Representatives from the farming states who are bankrolled by the corporate ethanol beneficiaries and their constituents who will re-elect them. The environment does not benefit, as many studies have concluded that it requires more fossil fuel energy (oil & coal) to produce a gallon of ethanol than the energy created. The jobs created in the farm belt at artificially profitable ethanol plants are more than offset by job losses due to the added costs in the rest of the economy. When subsidies are removed or oil prices drop, the ethanol plant jobs disappear, resulting in a massive capital mal-investment.

Our supposedly wise PhD and MBA leaders have created a perfect storm. The unintended consequences of government intervention in the markets are causing havoc, food riots, starvation and intense suffering for the poor and middle class. Brazil produces sugar cane ethanol in vast quantities and can export it to the U.S. much cheaper than we can produce corn ethanol. Fuel prices would be lower without tariffs on Brazilian ethanol imports. The average cost of food as a percentage of disposable income for an American is 10%. Averages obscure the truth that the cost is probably .0001% for Lloyd Blankfein, Ben Bernanke and Chuck Grassley, while it is 30% for a poor family in Harlem. America’s horribly misguided ethanol policy combined with Ben Bernanke’s Wall Street banker subsidy program are resulting in soaring fuel and food prices across the globe. Poor people around the world suffer greatly from these policies. Below are two assessments of ethanol.

“Everything about ethanol is good, good, good.”Senator Chuck Grassley, Iowa

“This is not just hype — it’s dangerous, delusional bullshit. Ethanol doesn’t burn cleaner than gasoline, nor is it cheaper. Our current ethanol production represents only 3.5 percent of our gasoline consumption — yet it consumes twenty percent of the entire U.S. corn crop, causing the price of corn to double in the last two years and raising the threat of hunger in the Third World.”Jeff Goodell

Who do you believe?

« Wall Street Pay For 2010: A RECORD $144 Billion »

Wall Street says thanks for the bailout, suckers!

Not picking on Art Cashin.


Pay on Wall Street is on pace to break a record high for a second consecutive year, according to a study conducted by The Wall Street Journal.

About three dozen of the top publicly held securities and investment-services firms—which include banks, investment banks, hedge funds, money-management firms and securities exchanges—are set to pay $144 billion in compensation and benefits this year, a 4% increase from the $139 billion paid out in 2009, according to the survey. Compensation was expected to rise at 26 of the 35 firms.

The data showed that revenue was expected to rise at 29 of the 35 firms surveyed, but at a slower pace than pay. Wall Street revenue is expected to rise 3%, to $448 billion from $433 billion, despite a slowdown in some high-profile activities like stock and bond trading.

Overall, Wall Street is expected to pay 32.1% of its revenue to employees, the same as last year, but below the 36% in 2007. Profits, which were depressed by losses in the past two years, have bounced back from the 2008 crisis. But the estimated 2010 profit of $61.3 billion for the firms surveyed still falls about 20% short from the record $82 billion in 2006. Over that same period, compensation across the firms in the survey increased 23%.

"Until focus of these institutions changes from revenue generation to long-term shareholder value, we will see these outrageous pay packages and compensation levels," said Charles Elson, director of the Weinberg Center for Corporate Governance.

Firms surveyed said it is too early to comment on 2010 compensation levels. Many firms say that if they don't adequately compensate employees, they risk losing top talent.

And this is extremely well done...


Video - Nomi Prins on foreclosure, banks and Wall Street pay

For those who don't know, Nomi is a former Goldman Sachs Managing Director. Much more inside including an excellent WSJ infographic on the bonus pigs of Wall Street.


New Hit to Strapped States

Borrowing Costs Up as Bond Flops; Refinancing Crunch Nears

With the market for municipal bonds tumbling, cities, hospitals, schools and other public borrowers are scrambling to refinance tens of billions of dollars of debt this year, another sign that the once-safe market is under duress.

The muni bond market was hit with the latest wave of bad news Thursday, prompting a selloff that sent the market to its lowest level since the financial crisis. A New Jersey agency was forced to cut the size of a bond issue by about 40% because of mediocre demand, and pay a higher rate than expected. And mutual fund giant Vanguard Group shelved plans for three new muni bond funds, citing market turmoil.


"We believe that this delay is prudent given the high level of volatility in the municipal bond market," said Rebecca Katz, spokeswoman for the nation's biggest fund company.

The market has fallen every day this week, and investors have been net sellers of their holdings in municipal-bond mutual funds for nine straight weeks, according to fund tracker Lipper FMI.

Yields on 30-year triple-A rated general obligation bonds shot higher to 5.01% on Thursday, reflecting a spike in perceived risk, according to Thomson Reuters Municipal Market Data. The last time those bonds yielded 5% was Jan. 30, 2009, during the financial crisis.

Amid the selloff, public borrowers such as states and utilities face a wave of refinancing stemming from deals cut mostly during the crisis. The deals involved letters of credit from banks that were designed to keep financing costs down for government entities in need of cash.

With the market for municipal bonds tumbling, cities, hospitals, schools and other public borrowers are scrambling to refinance tens of billions of dollars of debt this year. Michael Corkery has details. Plus, Toyota tries to break reliance on China.

Though the financing deals can be meant to last decades, the letters of credit underpinning them are expiring sooner. That could force the borrowers in many cases to pay higher interest rates or seek guarantees at higher costs. For the weakest borrowers, new guarantees may not be available and refinancing too costly. There are about $109 billion worth of letters of credit and similar backstops expiring this year, according to Bank of America Merrill Lynch. Some $53 billion in letters of credit alone is expiring this year, according to Thomson Reuters.

"Municipalities may be hard-pressed to come up with this money or refinance this debt," said Eric Friedland, a municipal analyst at Fitch Ratings. The ratings firm is scouring to identify risks among weaker municipalities that are seeking to renew these deals, and says it could downgrade some.

The rollover rush stems from the credit crisis that roiled the U.S. in 2008. Municipalities had issued so-called auction-rate securities, instruments whose rates reset at weekly auctions. Amid the credit crunch, buyers at these auctions vanished.

Many municipalities scrambled to convert the debt into other instruments, including variable-rate demand obligations, which are long-term bonds with interest rates that reset periodically. For a fee, big banks guaranteed many of these deals.

These so-called letters of credit from banks typically only last two or three years, leaving municipalities to refinance the deals or obtain a new guarantee. The issuers expected to easily renew the letters of credit.

But many of these letters of credit have become much more expensive and scarce, state officials say, leaving them with little choice but to try to refinance at a time when the broader muni market is under pressure.


The short-term squeeze is unusual in the $2.9 trillion municipal bond market. Most debt is paid back over decades. And state and local governments generally don't need to borrow money to fund their daily operations. The long-term nature of the market is a key reason why most experts don't see the problems with state and local government debt spiraling into another financial crisis. Analysts say that many large states and cities with good credit ratings have been able to roll over deals well ahead of their expiration.

But there are parts of the market where short-term cash crunches could emerge, leading municipalities to potentially default on their debts. The risks could spill over to banks that backed bonds with the letters of credit.

"This is one area of risk the market hasn't focused on," said Frederick Cannon, a banking analyst at Keefe, Bruyette & Woods. Mr. Cannon says it is difficult to determine banks' exact exposure to such deals because they don't typically report them in their financial statements.

The stress is on display at the New Jersey Economic Development Authority, a governmental agency. This week, the agency sought to refinance some variable-rate debt, but met mediocre demand from investors. The state had to reduce its planned $1.8 billion offering to $1.1 billion because of the rates investors were demanding.

Part of the $1.1 billion will be used "to eliminate the need for $1 billion in letters of credit at what were sure to have been prohibitively high prices," said Andrew Pratt, a spokesman for the New Jersey Treasurer. Mr. Pratt said the state was able to achieve "favorable rates" in the scaled-back bond sale.

In Texas, J.P. Morgan Chase & Co. has taken control of a debt that it back-stopped in a 2001 deal that requires the public agency running the Houston Texans' football stadium to pay back a 30-year bond over the next three-and-a-half years.

"Think of having a 30-year mortgage, and then someone suddenly says you have to pay your house off in five years," said Janis Schmees, executive director of the Harris County Houston Sports Authority, which built the stadium. "That is pretty much our scenario." A representative for J.P. Morgan declined to comment.

California, which has letters of credit backing about $525 million in debt coming due in November, is planning to renew the guarantees. "We expect when November rolls around, we will get those letters renewed," said Tom Dresslar, a spokesman for the state Treasurer.

According to Moody's Investors Service, of the 500 municipal issuers that it rates with variable-rate demand bonds backed by some form of bank support, about 200 don't have the top ratings.

The biggest concerns, analysts say, are smaller muni borrowers such as hospitals and schools that have subpar credit.

Municipalities borrowed $122 billion of variable-rate demand debt in 2008, roughly twice the amount of these types of loans borrowed the year before, according to Thomson Reuters.

Rollover crunches were a major part of the financial crisis, as banks that had relied on short-term debt couldn't borrow and became insolvent. More recently, rollover issues contributed to Greece's financial crisis.

Banks are reluctant to renew the letters of credit in part because of impending rules that restrict the amount of risk they can take.

Besides banks, one provider of muni letters of credit is the giant California pension fund, the California Public Employees' Retirement System, which has back-stopped $2.5 billion of adjustable-rate bonds.

Calpers' chief investment officer, Joe Dear, said in an interview that the pension fund partly uses the letters to make it easier for local California entities to borrow money, but it has no plans to ramp up its involvement in such deals.

"We, like a lot of people, are watching the muni market, and it is not getting any healthier," said Mr. Dear.

—Kelly Nolan contributed to this article.

Les Leopold: Wall Street is running a casino

Click this link .......

US debt passes $14 trillion, Congress weighs caps

Tom Raum

WASHINGTON – The United States just passed a dubious milestone: Government debt surged to an all-time high, more than $14 trillion.

That means Congress soon will have to lift the legal debt limit to give the nearly maxed-out government an even higher credit limit or dramatically cut spending to stay within the current cap. Either way, a fight is ahead on Capitol Hill, inflamed by the passions of tea party activists and deficit hawks.

Today's debt level represents a $45,300 tab for each and everyone in the country.

Bills increasing the debt limit are among the most unpopular to come before Congress, serving as pawns for decades in high-stakes bargaining games. Every time until now, the ending has been the same: We go to the brink before raising the ceiling.

All bets may be off, however, in this charged political environment, despite some signs the partisan rhetoric is softening after the Arizona shootings.

Treasury Secretary Timothy Geithner says failure to increase borrowing authority would be "a catastrophe," perhaps rivaling the financial meltdown of 2008-2009.

Congressional Republicans, flexing muscle after November's victories, say the election results show that people are weary of big government and deficit spending, and that it's time to draw the line against more borrowing.

Defeating a new debt limit increase has become a priority for the tea party movement and other small-government conservatives.

So far, the new GOP majority has proved accommodating. Republicans are moving to make good on their promise to cut $100 billion from domestic spending this year. They adopted a rules change by House Speaker John Boehner that should make it easier to block a debt-limit increase.

The national debt is the accumulation of years of deficit spending going back to the days of George Washington. The debt usually advances in times of war and retreats in peace.

Remarkably, nearly half of today's national debt was run up in just the past six years. It soared from $7.6 trillion in January 2005 as President George W. Bush began his second term to $10.6 trillion the day Obama was inaugurated and to $14.02 trillion now. The period has seen two major wars and the deepest economic downturn since the 1930s.

Read Full Article

Already, both sides are blaming each other for an approaching economic train wreck as Washington wrestles over how to keep the government in business and avoid default on global financial obligations.

DC Puts Its Bankster-Friendly Solution for Foreclosure Fraud on the Table

We’ll analyze a proposal to fix the foreclosure mess put out by a DC think tank known as Third Way. Normally this blog steers clear of delving into random policy documents. In this case, though, it is likely that Third Way is speaking for the administration.

Third Way is an influential think tank whose board is composed of a special Wall Street-type – the Rubin Democrat. These people sit at the nexus of politics and finance, and are conduits for big bank friendly information flow into the administration and Congress. The President of the think tank, Jonathan Cowan, was the Chief of Staff for Andrew Cuomo at HUD in the 1990s, and Third Way is well known in policy circles for delivering ‘politically safe’ and well-packaged conventional wisdom. Oh, and one more thing – the new White House Chief of Staff Bill Daley, who just left the most senior operating committee of JP Morgan, was on their Board of Directors.

So by looking at this proposal, we are looking at the state of play among high level policy makers in DC, particularly of the New Dem bent. This is how the administration will probably try to play foreclosure-gate.

Their proposal, not surprisingly, is yet another bailout.

The big difference between the original and the new, improved version of the bailout model is that the payouts to the banks were at least in part visible the first time around. This is an effort yet again to spare the banks any pain, not only at the cost of the rule of law but also of investor rights.

This proposal guts state control of their own real estate law when the Supreme Court has repeatedly found that “dirt law” is not a Federal matter. It strips homeowners of their right to their day in court to preserve their contractual rights, namely, that only the proven mortgagee, and not a gangster, or in this case, bankster, can take possession of their home.

This sort of protection is fundamental to the operation of capitalism, so it’s astonishing to see neoliberals so willing to throw it under the bus to preserve the balance sheets of the TBTF banks. Readers may recall how we came to have this sort of legal protection in the first place. England learned the hard way in the 17th century what happens with low documentation requirements: abuse of court procedures, perjury and corruption become the norm. Parliament enacted the 1677 Statute of Fraudsto establish higher standards for contracts, such as witnessing by a third party, to stop the widespread theft of property that was underway.

The memo completely ignores the harm to investors from the bank mistakes and lacks any provisions for damage to investors to be remedied. Moreover, denying borrower rights removes their leverage to obtain deep principal mortgage modifications, which for viable borrowers produces lower losses than costly foreclosures and sales of distressed property. Thus this shredding of contractual protections in mortgages not only hurts borrowers but also harms investors.

So to save the banks from their own, colossal abuses of contracts that they devised, the Third Way document advocates Congressional intervention into well established, well functioning state law. This is a case where these matters can and should be left to the courts and ultimately state AGs to coordinate the template of a more broadbased solution.

But this proposal is this memo is a direct result of the banks losing in court and the fear that they will continue to lose. The Massachusetts Supreme Judicial Court Ibanez decision is clearly the trigger for the release of this plan. The SJC said its decision was merely articulating well established law. Consistent application of these principles will mean more losses for the banks. This memo is clearly an attempt to stop this as soon as possible. The real message of this document is clear: we can’t permit justice to prevail if it will hurt bank profits and balance sheets.

Let’s parse key sections of the document. Predictably, it chooses to divert attention away from the real issue, that of the greed and errors made by securitization industry participants, and the huge costs already imposed on innocent bystanders by the financial crisis.

Start with the first page:

While consumer advocates are hailing the decision as a victory for borrowers, homeowners are more likely to suffer the downsides—not the benefits—from the Massachusetts ruling. This case is certain to set off a massive wave of litigation by borrowers and lawyers eager to challenge a pending foreclosure. This in turn will create tremendous uncertainty in the still-wobbly housing market: Will homebuyers who bought a home out of foreclosure worry that their purchase will be invalidated? Will prospective homebuyers get too nervous to come off the sidelines, thereby driving up inventory and driving down home values? Will some homeowners be encouraged to “strategically default” in the hopes of winning a “free house” from technically faulty paperwork?

This is scare-mongering, pure and simple. It isn’t credible that a decision in one state with some idiosyncrasies in its real estate law will trigger a “massive wave of litigation”, particularly since anti-foreclosure lawyers often have trouble getting paid. Broke clients do not make for a great target market.

As to the “tremendous uncertainty” claim, where exactly has Third Way been? If they are only waking up now to the magnitude of the foreclosure mess, that alone disqualifies them from being competent to opine on this topic (note that this seems to reflect the advanced state of denial we’ve seen among securitization industry types; the result has been that parties further removed have been slow to wake up to the seriousness of this problem, despite ample evidence in local courts all over the US).

The homebuyer worry about foreclosure sales being invalidated argument is spurious; as we’ve remarked before, foreclosure sales are final. I can’t recall an instance of a public policy measure being implemented to pander to the neuroses of uninformed consumers.

Possible REO buyers sitting on the sidelines? That’s already true, and it’s due to doubts over validity of title thanks to MERS, not Mass., as well as the concern that housing has not bottomed in many markets. Since Third Way appears remarkably uninformed about housing market conditions outside the Beltway, namely, that there’s a huge inventory of homes yet to be foreclosed upon, largely due to servicers keeping borrowers in homes. That’s partly the result of a fee-maximizing “sweatbox” strategy, partly to save the costs of property maintenance and real estate taxes since they already have more real estate than they can unload in many local markets, and partly due court backlogs.

Third Way manages to accomplish the neat rhetorical trick of linking the urban-legend of “strategic defaults” (see Mike Konczal for details) with the jealousy-inciting “get a free house” meme.

Let’s get this straight: not a single lawyer I’ve come across want his client to get a free house. They fight foreclosures to get a mod. So when you see banks losing these cases, it’s because everyone involved on the servicer side has incentives to foreclose, not to modify loans.

In addition, vIrtually no decision, including Ibanez, have been “with prejudice”. That means the banks can foreclose if they get their act in gear. But the dirty secret is that the party that probably can foreclose is not the securitization trust, but an entity earlier in the securitization chain. Having someone other than the trust foreclose is a disaster for the securitization industry. There is no way to get the sale proceeds into the trust. The end result of having someone other than the securitization trust foreclose is to expose, as Georgetown Law professor has put it, that some if not most RMBS might actually be “non-mortgage-backed securities.”

We’ll largely skip over a heated and heavily spun section on the paper trail; it of course focuses on robosigning and overlooks numerous other abuses such as failure to convey notes properly and all too common document fabrications. However, we must note it too often gets the background and law wrong, again raising questions of basic competence. For instance:

Under the UCC, physical possession of the note and the mortgage are not required to enforce the loan.

This is embarrassing. The UCC is not relevant to this issue. As we have argued, the UCC (Article 1) specifically allows parties to contract out of the UCC and enter into more restrictive arrangements, which means the terms of the pooling and servicing agreement govern. But the UCC has nothing to do with the legal requirements for foreclosure; that’s governed by state-based real estate law, not the UCC. And in lien theory states, it means that the party foreclosing can be any of 1) “holder” of the note (meaning have possession AND be the proper party (or an agent of the proper party), 2) produce a lost note affidavit, 3) be subrogated to a holder or 4) be a purchaser from a holder who doesn’t yet have the note. Effectively, the foreclosing party either has to have the note or prove that it bought it from someone who actually has the note. That generally means you’ve got to produce the note.

The next section, on remedies, again contains distortions. For instance:

….if a foreclosure proceeding is otherwise justified (i.e. the borrower isn’t paying the loan), documentary failures don’t nullify a lender’s underlying right to a remedy.

Calling these “documentary failures” greatly understates the magnitude of the bank recklessness. A note is a negotiable instrument, like a check. Losing track of notes, each worth on average hundreds of thousands of dollars, is so deficient that that alone ought to justify all the major banks being seized and put through operational audits.

And despite this level of incompetence (or malfeasance), the banks have not been denied the ability to foreclose. Unless banks make repeated misrepresentations to the judge, the cases are dismissed without prejudice. The plaintiffs are free to come back and try again once they sort matters out. But they seldom bother. And again, it’s often because if they do find the note, it’s likely to be outside the trust, which as discussed above, creates a heap of other problems.

Next, in typical think tank style, the paper summarizes goals, then later offers remedies organized around those points; we’ll address both shortly.

The first goal is “Protecting injured homeowners“.

The discussion in the summary takes the view that the only “injured” homeowners that get any consideration are those “genuinely damaged by paperwork failures”. Thus the only problems that are addressed are screw-ups in the mod/short sale process and wrongful foreclosures. We see nary a mention of origination fraud or servicing abuses and errors. Yet foreclosure defense attorneys have said in 50% to 70% of the cases they represent, the borrower got in serious arrears as a result of servicing errors and compounding fees; a single late or misapplied payment can quickly compound into a multi thousand dollar deficiency before the borrower even finds out something is amiss.

Now let’s turn to the summary of section 2, “Keeping the housing market moving“:

The Massachusetts decision shouldn’t justify the creation of a cottage legal
industry aimed at stalling inevitable foreclosures. Creating a limited safe harbor from
paperwork-related litigation for pending foreclosures on abandoned or severely
delinquent properties would provide more certainty to the housing market and help
triage potentially successful modifications from inevitable foreclosures. In addition, a
one-year statute of limitations on paperwork-related lawsuits would ensure litigation
doesn’t drag on for years.

This is a doozy. “Cottage legal industry”? This is a more sophisticated, drive by version of the tactic used in a widely deplored first page Wall Street Journalstory which demonized foreclosure defense lawyers for being competent at court procedure.

Is there any other instance where an entire set of parties to a broad class of contract have gotten a free waiver for their own enormous, costly, and purely elective errors? The normal arrangement is that to obtain a waiver or a change in contract terms that has economic value, consideration must be paid. Remember the JP Morgan purchase of Bear: the reason the price went from $2 per share to $10 was that JPM had made a drafting error that left it exposed to more risk than it had bargained for and it needed to reopen the deal.

But I see no proposal here to have borrowers receive compensation from servicers and trustees for having their rights compromised. Aha, that’s the reason for all the expatiating about the Ibanez decision being bad for borrowers. They should give a major concession for free because it’s really good for them! Stockholm syndrome in action!

If the Third Way types were truly concerned about protecting homeowners rather than banks, they’d at the very least give homeowners something in return for the rights they are being asked to sacrifice, such as allowing courts to write down mortgages to current market value in bankruptcy (a well established practice for virtually every other type of secured lending).

Per the Third Way logic, the new reality of contracts is not the libertarian model of an agreement between equals, but of raw might makes right. A contract is treated as an ironclad, rigid arrangement if you are a small guy, but compliance is optional if you are powerful and well connected. Rubinites clearly benefit from promoting this world view.

And standing is NOT a matter of “paperwork”. This is a bedrock legal principle. Abandon the concept of legal standing, which is what this document calls for, and anyone can show up in court and say he has a right to your house once the statute of limitations has expired. Given that the initial foreclosure notice often lead to payment catch-up plans, combined with servicer incentives to keep borrowers in a delinquency “sweat box”, it isn’t hard to see servicers gaming a one-year statute of limitations (look how good a job they did of gaming the far more complicated HAMP).

In the detailed remedies section later in the document, Third Way picks up on a Shiela Bair proposal, that of a safe harbor against lawsuits if the house is vacant or the servicer has offered a deep payment mod, at least 25%. The vacancy provision looks like a red herring. How many cases are there where the house has been vacated, yet the borrower is suing? The only one I know of is not one that does not hew to the proposal’s assumptions about the motives of borrowers who do vacate property yet sue to get it back. The borrower left because she had previously been wrongly evicted from a rental, and everything in her apartment was dumped on the curb. By the time she got home from work, all her possessions, including her baby’s crib, had been stolen or hopelessly damaged. Economically and emotionally she could not afford to go through that again and moved out when the foreclosure became final (her attorney later filed a wrongful foreclosure suit).

More broadly, this element of the proposal appears unnecessary, and may give banks too much latitude in defining what is subject to this safe harbor.

As for Bair’s proposal for payment mods, the problem is that research shows again and again that what is called for is deep principal mods. Why should a borrower work to keep a deeply negative equity home only to face a shortfall upon sale?

Note that these provisions would also presumably have the effect of sheltering servicers and trustees from litigation, when the trustees made multiple certifications that they had all the loans and everything was in order. Remember, if the trustees had done what they repeatedly said in writing, in SEC filings, that they had done, none of this would be an issue.

Thus the Third Way plan also destroys contractual agreements without approval of the parties. Investors were entitled to get collateral with good title and, in the absence of that, to put back defective collateral to the seller. This would undo such contractual provisions for the sole benefit of one side, those on the originating/servicing end of the deal.

The next section, “Preventing future failures“, is motherhood and apple pie. The work is fobbed off to the Consumer Financial Protection Bureau, which in turn has to get approval from the members of the Financial Stability Oversight Council. Effectively, all the document calls for is for the CFPB to make sure banks live up to their contractual commitments. What a concept!

An ironic aspect of this proposal is that it is depicted as a way to reduce uncertainty. In fact, any Congressional intervention into well-settled state based real estate law is very likely to generate Constitutional challenges, particularly since Federal bank regulators have acknowledged that state law still applies to securitization assets. That in turn will increase, not reduce, uncertainty, and put the real estate market in an greater pall than it is now.

Finally, yet more “appease the banks” is a politically fraught strategy. The Administration seems unable to learn the real lesson of the midterm elections and is redoubling its efforts to pursue a failed course of action. Bank-friendly Blue Dog Democrats lost, progressives for the most part stayed in place, and Tea Partiers became a Congressional force for the first time. The unifying element is that this was a “vote out the corporatist incumbents” move above all else.

Establishment Republicans would also be wise to give this proposal a wide berth. If you want to recruit for the Tea Party, you could hardly find a better tool that to have the Federal government interfere with local courts on a matter as important to most Americans as their homes.

U.S. Bills States $1.3 Billion in Interest Amid Tight Budgets

As if states did not have enough on their plates getting their shaky finances in order, a new bill is coming due — from the federal government, which will charge them $1.3 billion in interest this fall on the billions they have borrowed from Washington to pay unemployment benefits during the downturn.

The interest cost, which has been looming in plain sight without attracting much attention, represents only a sliver of the huge deficits most states will have to grapple with this year But it comes as states are already cutting services, laying off employees and raising taxes. And it heralds a larger reckoning that many states will have to face before long: what to do about the $41 billion they have borrowed from the federal government to help them pay benefits to millions of unemployed people, a debt that federal officials say could rise to $80 billion.

The states, when they borrowed the money, hoped that the economy would have turned around by the time the first interest payments came due, or that future Congresses might loosen the terms. But the economy did not turn around in time and the new Congress, dominated by Republicans determined to shrink the size of government, shows little appetite for deepening the federal deficit by bailing out the states.

The problem is not only the staggering number of people who have lost their jobs, but the fact that many states entered the downturn with too little money salted away in the trust funds they use to pay unemployment benefits, which they are supposed to build up in good times by taxing employers.

Those anemic trust funds ran dry quickly in many states as millions of newly jobless Americans began collecting benefits. So many states borrowed money from the federal government, helped by the stimulus act, which gave them a break on interest for nearly two years. But that grace period ended Dec. 31, and states will owe the first interest on those loans in September.

Michigan, which owes Washington $3.7 billion, is supposed to pay $117 million in interest by September — just about what it pays each year to run Western Michigan University. California, which owes $362 million in interest on a total debt of $9.7 billion, the highest in the nation, plans to juggle its accounts, borrowing from a trust fund for disabled workers to pay interest to the federal government.

In New York, which owes $115 million in interest on $3.2 billion, the cost will be passed on to employers in the form of a tax surcharge. Texas went to the bond market and borrowed $2 billion to pay back all the money it borrowed from the federal government, judging that the interest on the bonds, which are backed by a tax on employers, would cost less.

Some states are planning to follow the lead of Texas, and borrow the money to repay the federal government. Others are asking for more time.

“During this time of extreme economic stress not only on the citizens of our states, but also on state budgets, state loan interest payments that will come due in September 2011 place further hardship on states’ finances and could slow economic recovery,” a group of 14 governors from both parties wrote to Congressional leaders last month. Their letter added: “Extending the interest-free loans would allow states to avoid increasing payroll taxes, reducing benefits, or both, while the economic recovery continues.”

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'More British families failing to pay rent'

An increasing number of British families have failed to pay their rent in the last quarter of 2010 as job losses and pay decreases haunt people across the UK, a new survey reveals.

The Association of Residential Letting Agents carried out the survey whose results suggest that 4 out of 10 agents said they witnessed an increase in the number of tenants having trouble paying rent in the last quarter of 2010, up from 35.9 percent in the third quarter, British media reported.

The results of the survey also revealed that redundancies combined with reduced working hours or pay cuts had resulted in many people struggling to pay their rent.

"Without guaranteed rent income, landlords may also have problems paying mortgages”, said the association's operations manager Ian Potter.

"At worst it may result in a rise in repossessions", he added.
Housing campaigners have called for more money for affordable council homes and laws to stop private landlords from charging extortionate rents.

Meanwhile, housing charity Shelter says more than two million people have used credit cards to pay their mortgage or rent, warning that more people could be left homeless.

"We know from the cases we see every day that just one single thing, like a bout of illness, a rent increase or a drop in income, is all that's needed to push people into the spiral of debt and arrears that can lead to the loss of their home”, said Shelter chief executive Campbell Robb.

"We urge the government to think again about the cumulative effects of its policies on people who are at real risk of losing their homes”, he said.


Could Britain be heading for a crash?

We cannot postpone indefinitely the final acceptance that we must live within our means, writes Simon Heffer.

I had a long talk on Tuesday with one of the wisest and cleverest economic thinkers I know, and he was sure of one thing: we are heading for a crash. Is he right? The stock market has started the year strongly. Sterling is up against the dollar and was rising against the doomed single currency as well, until the Chinese – for their own Machiavellian reasons – bought vast quantities of euro debt
this week.

Sadly, other indicators suggest that such good news as we have is an illusion. It mystifies me why the Bank of England didn't raise interest rates this week, with the threat of inflation now blindingly apparent. Think, though, what that would do to a housing market already heading south; or to those people with other, shorter-term debts, the repayments on which could well become suffocating. For many of them, the day of reckoning has been long postponed. Now, it may be just weeks away.

François Fillon, the urbane and rather successful French prime minister, came to London this week and seemed to take for granted our continued support of the euro, arguing that our economic future depended upon it, too. He exaggerated, but did so because of the great fear in France that the game is up for their currency. It is hard to see why there is this fear. If the euro goes under, the French can simply resort to the franc and find themselves able to widen their export markets, because everything would be cheaper.

True, the financial sector, with its exposure to euro debt, would take a thumping – our own included. But these were risks taken by banks, and they would just have to bear them. In the same way that the Government has no business telling banks what they can pay their staff, it has no business continually bailing them out either. What is most important is that the Government should peer over the horizon at these potential problems, and work out how to manage their consequences.

Our rulers have encouraged the thought in the past couple of months that while things are still very difficult, and hardships inevitable, the worst is over. Perhaps it isn't, though; because maybe what they meant was that they had inflicted on us all the pain that they thought was needed, and no more was planned.

What they hadn't taken into account, as so often with this Government, is that factors beyond their control will now start to kick in. If there is some sort of external blow to the economy, whether in the shape of the euro ceasing to defy gravity, or simply more bad news from America, there will have to be a sharp adjustment to policy here. Our taxes remain far too high, and an obstacle to recovery as it is. If the recovery has to start from an even lower base, the obsession with not cutting taxes in case some "rich" person – possibly even an evil banker – becomes richer will have to be jettisoned once and for all.

Where my economist friend is almost certainly right is that, even without external shocks, interest rates must rise. Personal bankruptcies and business failures will rise with them; so will unemployment. House prices will fall, and possibly also many other asset values, including the stock market. We cannot postpone indefinitely the final acceptance that we must live within our means.

If such a downturn comes, then growth is the only way out of it. That requires the Government to stimulate demand. It will be all too easy, if things turn ugly, to act like the rabbit in the headlights. We have seen governments do this before. What our rulers need to remember is that such paralysis is always fatal.

Money to The People - NOT to Banks

David Cameron: no 'revenge' on bankers

Voters must stop seeking to “take revenge” on banks and accept they are vital to the economic recovery, David Cameron has said.

Signalling he is prepared to defy public opinion, the Prime Minister indicated he will reject demands for punitive action on bankers bonuses and admitted his approach could be unpopular.

Taxpayers are “rightly angry” about bankers getting huge bonuses, Mr Cameron said.

But he insisted he will not court short-term popularity by trying to “hammer” the financial sector.

Instead, he said, the Coalition will try to strike a balance between heeding calls to impose tough rules on the banks and allowing them to get on with lending to British businesses.

“It’s about getting the balance right. It’s not going to be easy and it won’t satisfy everybody,” Mr Cameron said.

"But we’ve got to try to work for that balance rather than just think, let’s take revenge on people because they’ve made us mad as hell."

City investment banks are beginning their bonus season, informing staff about their payments for 2010, with total bonuses expected to be £7 billion.

It emerged yesterday that JP Morgan, a US bank, will pay £1.87 billion in salary and bonuses to its London staff. They will enjoy an average payout of £234,180.

Other large payments will be announced in the coming weeks, including bonuses at state-owned RBS.

Mr Cameron said he understood public anger over bonuses: “There is part of me, like probably everyone in this room, that thinks, right, let’s just go after every penny we can get out of those banks, let’s tax these bonuses to hell. That would look good for a few weeks.”

But, he said, punitive taxes on banks could be counterproductive, hurting bank lending and profits, in turn harming the UK economy.

“We want a growing economy which is creating job and that means banks that are lending to businesses. I want to maximise the amount of tax they actually pay,” he said.

“I don’t want to just try to win good headlines by saying I’m going to hammer these guys. I want to make sure they’re paying more tax this year than last year.”

Mr Cameron's remarks come days after Bob Diamond, the chief executive of Barclays, caused anger by telling MPs that the time for bankers to show remorse over the financial crisis is over.

Ed Miliband has launched repeated attacks on Mr Cameron over bank bonuses, and yesterday suggested the issue helped Labour to victory in the Oldham by-election, where the Conservatives finished a poor third.

The Labour leader will keep up the pressure on banks today, saying Labour will be the party of protest over bonuses.

“I want us to articulate the frustration of people who are fed up with bankers taking vast public subsides and then rewarding themselves for failure while the rest of the country struggles,” Mr Miliband will say in a speech.

Liberal Democrat ministers have also demanded stronger action on bank bonuses, backed by some Conservatives.

Michael Gove, the education secretary, told the BBC that the banks’ behaviour had been “outrageous” and said they should face “legislation and castigation” over bonuses.

By contrast, Lord Heseltine of Thenford, one of the elder statesmen of the Conservative Party today warns against the “folly” of targeting bonuses and driving bankers out of Britain.

“The financial services industry is hugely important to the British economy; if you want to be world competitive, then you have to pay the sort of money that the world industry will pay,” the former deputy prime minister tells the Daily Telegraph today.

“It would, in my view, be the utmost folly to create a climate in this country which was anything other than sympathetic to the financial services industry.”

Perpetual War for Perpetual Employment?

Here at the Daily Bell, we remain convinced that America's serial wars have continually deepened that great country's economic crisis. And this gives rise to a peculiar dilemma that we don't usually point out, but which will be the purpose of this article. It may even explain the reluctance of the US to leave Afghanistan and to generally disengage from overseas violence.

This is the issue: "How can the US cease its warring when so many people in that beleaguered country depend on conflict for their employment?"

The US unemployment or under-employment rate (the real one) is somewhere between 25 and 30 percent. To reduce or eliminate garrisons in both Iraq and Afghanistan would inject hundreds of thousands of additional individuals into an economy that is struggling to provide employment to available workers. (Not to mention the private-sector "defense" jobs that would be made redundant.) And assuming that the additional workers find jobs; wouldn't they be at substantially lower salaries than their existing military compensations?

It is certainly easier to get into a war than to get out of one. Of course, here I am referring to the visible wars only, those which comprise millions of Americans who are earning wages that would otherwise not exist and for whom many would find their current skills not in great demand in peacetime.

It appears on surface that the US could not afford this influx of unemployed and any reigning political body would be committing domestic economic suicide should they chose to truly adopt a non-aggressive foreign policy and return America to protecting its own shores rather than spreading "democracy" all over the world. And here clearly we at the Bell believe that is ALL the US military should be doing. And we also believe that would require a personnel effort of much smaller numbers than taxpayers are currently supporting.

Were the US to suffer such an influx of unemployed as a result of adopting a sensible foreign policy rather than acting as the policemen for global morality, it is likely that trade unions and other leftist organizations would demand the existing wages of the military workers be maintained at current levels. Of course Congress would attempt to pass wage support legislation to ensure that standards of living didn't suffer in the new careers sought but to what overall detriment to the value of the dollar?

The bottom line is that the US economy cannot handle a peaceful withdrawal from active combat without causing even further unemployment, not just to those on the front lines but to all the industries who comprise the vertical support network which keeps the whole clock ticking. And for politicos intent on battling an already raging domestic unemployment crises, caused primarily by the country's out-of-control Federal Reserve, it is ironic that the current and future administrations of the US have no way out of this mess.

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The Internet: A Shock To The Elites System

TSA Pays Off In Breast Exposure Suit ... Texas woman, 24, receives "nominal" settlement ... The woman who sued the Transportation Security Administration after her breasts were exposed during a frisking at a Texas airport will receive a "nominal" payment from the government as part of a legal settlement ... The settlement was disclosed in documents filed last week in U.S. District Court in Amarillo, where Lynsie Murley last year filed a lawsuit accusing the TSA of negligence and intentional infliction of emotional distress in connection with the May 2008 incident at the Corpus Christi airport. – Smoking Gun

Dominant Social Theme: Fairness is the least that can be expected.

Free-Market Analysis: A new feudalism is being born. It is a quite deliberate effort of the power elite in our view, but people don't notice it – or haven't verbalized it – because it is difficult to analyze something when one is in the middle of it. But the feudal evolution is surely occurring. We can see its signature in the article above but there are many other signs.

Feudalism's "flourishing" or time-span was between ninth and 15th century, apparently. It was not a formal system but a sociopolitical evolution of relationships between various power nexuses. Wikipedia describes feudalism as "a set of reciprocal legal and military obligations among the warrior nobility, revolving around the three key concepts of lords, vassals and fiefs. There is also a broader definition, as described by Marc Bloch (1939), that includes not only warrior nobility but the peasantry bonds of manorialism, sometimes referred to as a ‘feudal society.'"

The evolution of the new feudalism can be seen in various ways, including the erosion of property rights for the middle class and the increasing molding of employment around the vast portfolios of the powers-that-be. (Lawyers and accountants are in high-demand.) The Western middle classes – especially in America where they have been the most vital – are under sustained attack. Taxes, inflation and unemployment are signatures of such a society, along with expansive regulations.

Of course the economic issues mentioned above have been features of Western regulatory democracies for some time. What is changing is the regulatory environment and people's attitudes towards its enforcement. Partially as a result of a bad economy, people are more willing to put up with a level of authoritarianism that would have disturbed them years ago. Ms. Murley is something of an exception, yet even here it is not her reaction that is so noteworthy as the attitude of those who harassed her. Here's some more from the article:

The 24-year-old Murley alleged that after being "singled out for extended search procedures," a TSA agent frisked her and "pulled Plaintiff's blouse completely down, exposing Plaintiff's breasts to everyone in the area." Her complaint noted that, "as would be expected," Murley was "extremely embarrassed and humiliated." Murley charged that TSA employees "joked and laughed about the incident for an extended period of time." After leaving the security line to be "consoled by an acquaintance who had brought her to the airport," Murley returned to the line, where a male TSA worker said that he had wished he was there when she first passed through. The employee, Murley recalled, added that "he would just have to watch the video."

There is a sense of entitlement, even arrogance, among TSA employees, or so it seems; and this is evidently and obviously shared by other government workers in the US, including law enforcement officials. There are endless reports in mainstream media of inappropriate use of tazers, and of outright shootings; the drug-war has been especially corrosive to American civil rights, encouraging government "takings" of private property without due process. Government service is increasingly glorified, if not rhetorically than through compensation. The average government worker apparently makes up to 50 percent more than the average individual in the private sector.

The inequities are increasingly obvious. Senior government officials contravene tax laws without penalty; central banks hand out trillions to favored financial firms and corporations; government secrecy is increasingly enshrined by judicial fiat along with the ever-expanding power of the US executive bench via authoritarian executive orders. As the inequities increase, so does the arrogance. Gradually a two-tier society is created.

At the center of the new feudalism, apparently, are the Anglosphere's great banking families and assorted appendages: major multinationals and even elements of church institutions. Beyond the core are lesser families and wealthy entrepreneurs, along with the corporate and government lieges that carry out the will of the central core. Still further down are government workers, soldiers, intelligence agents and others working within formal government institutions. In the private sector, lawyers, accountants and academic professors provide resources for the emergence of the new feudalism. Then, finally, there are the vassals ... everyone else.

The new feudalism is evidently to be worldwide; and the drive toward increased global governance is to be accompanied by eroding economic conditions, food insecurity and heightened authoritarianism. There is evidently and obviously a pattern in what is occurring; a level of planning seems evident and the implementation is ongoing. On the other hand, as we have pointed out, there has been a shock to the system: the Internet, the advent of which was unexpected. It has resulted in close scrutiny of the emergent new feudalism and may yet help ameliorate it.

Conclusion: The new feudalism is not being built openly but in secret; society is to be reorganized gradually and without any fanfare. But it is difficult to conduct a pan-social reconfiguration under the bright lights of electronic scrutiny. The Tea Party in America and the austerity riots in Europe are but two examples of the Internet's impact in our view. And just yesterday, protests flared in Tunisia, with much of the organizing apparently taking place on Facebook as occurred previously in Iran. Signs of the new feudalism are widespread; but because of the ‘Net, its imposition remains somewhat problematic.

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Bad Real Estate News Ignored to Spin Bright Future

I was shocked to see this headline from an Associated Press story yesterday, “Economists project home sales, construction to rise sharply in 2011 from extreme lows of 2010.” I was dumbfounded by the title of the article and even more taken back when I read the story which said, “The forecast delivered at the International Builders’ Show in Orlando sees U.S. economic growth sharply lifting home sales and residential construction over the next two years, but from near-historic lows posted last year. “ The chief economist for the National Association of Home Builders, David Crowe, said, “Single-family home construction, a bellwether for the housing market and the economy, will rise 21 percent to 575,000 this year and climb to 860,000 in 2012.” (Click here to read the full AP story.)

That is still about 75% less new construction from the peak of the housing boom a few years ago. This forecast was made just prior to yesterday’s release of the “Year-End 2010 U.S. Foreclosure Market Report” from Its headline read “Record 2.9 Million U.S. Properties Receive Foreclosure Filings in 2010 Despite 30-Month Low in December.” The report went on to say, “Total properties receiving foreclosure filings would have easily exceeded 3 million in 2010 had it not been for the fourth quarter drop in foreclosure activity — triggered primarily by the continuing controversy surrounding foreclosure documentation and procedures that prompted many major lenders to temporarily halt some foreclosure proceedings,” said James J. Saccacio, chief executive officer of RealtyTrac. “Even so, 2010 foreclosure activity still hit a record high for our report, and many of the foreclosure proceedings that were stopped in late 2010 — which we estimate may be as high as a quarter million — will likely be re-started and add to the numbers in early 2011.” (Click here to read the entire RealtyTrac report.)

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